Judge: Nash Bargaining Is No Solution for Patent Damages

Brandon Baum of Baum Legal and Practice Center Contributor, sent in this article discussing the “Nash 50 Percent Rule” and patentees recent attempt to use the rule to support it’s damages claim in it’s patent infringement case.  Is the Nash Bargaining Solution stronger and more defensible than the “25 Percent Rule”?

In Uniloc v. Microsoft, the Federal Circuit rejected the so-called “25 Percent Rule of Thumb” that suggested that in a hypothetical negotiation over reasonable royalties, a good starting point is to assume a profit split of 25% to the patentee and 75% to the infringer.  Although the Federal Circuit did not say it, it has been assumed by many that the problem with the 25 Percent Rule was that it gave too much to the patentee — resulting in excessive damage awards.  Indeed, it was Microsoft complaining about the use of the “Rule” on appeal, not Uniloc.

Patentees, however, are a clever and resilient bunch who always view the glass as half full.  Since the Federal Circuit found that the 25 Percent Rule was not sufficiently grounded in science, patentees sought a replacement that was stronger and more defensible — and many have turned to the Nash Bargaining Solution. The Nash Bargaining Solution is a mathematical proof of what any parent of two children knows; in a two person bargaining scenario, the optimal split that the parties will eventually agree upon is 50-50.  For this, Nash won a Nobel Prize.  ”Eureka!,” said patentees.  ”We will replace the unproven and now-rejected 25 Percent Rule with Nash’s Nobel Prize-winning 50 Percent Rule!” (more…)